Q&A: Condo board squanders funds on pizza, other expenses
Question: Our homeowners association has a runaway board with no concept of reality. There are 36 condominium units with several assessments covering “renovations” where repairs were carefully itemized. Our first assessment was $23,000, and the second $15,000, totaling $38,000 per unit. The board now advises there will be an additional assessment of around $39,000 per unit covering termite control, swimming pool repair and security camera installations. This renovation could take years to complete. The association has already run out of money three times, necessitating even more special assessments. Now, a homeowner has appointed herself the “liaison” to the contractor at a salary of $1,000 per month. Although owners did not vote for this, the board still sanctioned it. She has arranged for the board to assess owners thousands of dollars for the sole purpose of supplying pizzas on work days to all contractors and their workers. Most owners are elderly, struggling to make ends meet and on a tight budget with a meager fixed income. Special assessments are bad enough, but now we’re paying to feed workers pizza! The assessments were earmarked for association-related repairs, not to be used as pizza gifts. My son the lawyer says the association is subjecting itself to liability by distributing food to workers. Is he correct? The board won’t cooperate with my demands for accountability of thousands of dollars spent on the runaway renovation projects. What can I do?
Answer: Your son the lawyer is correct. Plying construction workers with pizza is not an association-related expense nor can it be the subject of an assessment. A health permit might be required to distribute food to third parties, and there is always the potential for liability should someone claim to fall ill from eating the food. Even if the chance of pizza-related liability appears minimal, it is an unnecessary risk to titleholders, and there’s no association-related benefit to be gained from this expenditure. The association should not provide pizza, should not arrange for an outside source to deliver pizza and should not reimburse workers for buying pizza themselves.
Owners struggling to make ends meet and on a meager fixed income probably would find such expenditures frivolous and offensive. Money obtained by special assessment is earmarked for a specific purpose in part by statute and/or association governing documents. Special assessments are not for general purposes. They aren’t meant to create a slush fund or to finance a spending spree for illicit or whimsical board activities. Typically, such assessments must comport with Civil Code sections 4070, 5300, and 5600-5625.
An unintended consequence of the self-appointed liaison is that she may affect the association’s Directors and Officers insurance policy by jeopardizing the board’s indemnification. Boards must act in good faith. Allowing an owner to unilaterally appoint herself liaison, along with a salary, constitutes decision-making outside the scope of the board’s statutory function.
As there are more titleholders than board directors, this makes overseeing and investigating board expenditures imperative. Owners may uncover the waste of resources that caused their association to run out of funds by using one of the few methods still available to them: accessing association books and records pursuant to Civil Code sections 5200 to 5205. To be effective, this tool for preventing indiscriminate monetary diversions, such as an absurd pizza assessment, must be pursued methodically and without gaps in document retrieval. Merely viewing such items isn’t good enough, you have to obtain and keep copies of all documents and records requested. The association must inform you in advance if copy costs apply.
Start the process by writing to the board president requesting to see all accounts payable and receivables, including receipts relating to the expenditures you seek. Your demand must comport with and fall within the request time frames noted in Sections 5200 to 5205. Be certain to send your letter via certified mail, return receipt requested, with copies sent also by regular mail to all directors. If the board does not comply by the statutory deadlines, file a small claims action asking for an order to produce the records, a $500 penalty (Civil Code section 5235 for the association’s noncompliance) and small claims court filing costs.
Request copies of any agreement between the association and the “liaison,” as well as proof evidencing the board’s due diligence in selecting this individual over others for that hypothetical position. If the board takes action without titleholder approval it must be prepared to justify that decision as one that is supported by law and association governing documents.
Without consistent owner objections to such indiscriminately offensive spending practices, the illicit activity will continue. Titleholders must do their part to hold these individuals responsible.
Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.
